Indian IT stocks have made a strong comeback in 2023, following their poor performance in the previous year. Driven by attractive valuations and easing worries about interest rate hikes from major central banks, IT stocks have witnessed significant gains.
The strong earnings of IT biggies for the December quarter have also offered clarity on the demand scenario, which is not as negative as previously anticipated. Indian IT firms rely heavily on revenues from the European and US markets, and the latest robust U.S. retail sales data comes as a welcome sign for the industry, boosting risk appetite among investors.
Additionally, the rupee's depreciation against the US dollar worked in favour of the IT industry, as it made their services more competitive in global markets.
The Nifty IT index, which tracks the performance of IT companies, saw a significant jump in value in the current year so far. The index has gained approximately 2,813 points, moving from 28,621 to 31,434 points, delivering a return of 9.82%.
Among the top performers in the index were Persistent Systems, L&T Technology Services, LTI Mindtree, Mphasis, and Tech Mahindra. This came after they reported strong quarterly earnings, backed by robust demand from overseas clients.
Following the strong Q3 performance, shares of Persistent Systems surged from ₹3,959 apiece to a new 52-week high of ₹4,939, generating a fabulous return of 25%.
In Q3 FY23, Persistent Systems reported a net profit of ₹238 crore, registering a growth of 35.22% YoY and 8.18% QoQ. The company increased its revenue from operations by 45.4% to ₹2,169.3 crore during the October-December 2022 period, from ₹1,491.7 crore in the preceding year.
Domestic brokerage firms have praised the results, with many pointing to the company's ability to generate consistent growth in a challenging economic environment.
Similarly, shares of L&T Technology Services soared after the company reported a 22% rise in its consolidated net profit at ₹305 crore on January 19. Since then, the stock has moved from ₹3,230 to ₹3,757, producing a return of 16.31%.
However, the stock is still 30% below its one-year high of ₹5,295. The stock was an underperformer in CY22, falling from ₹5,598 to ₹3,683, losing 34% of its value.
IT major Tata Consultancy Services (TCS), which kicked off the Q3 earnings season on January 09, delivered robust numbers for the December quarter, beating analyst estimates.
TCS' overall revenue rose 19.1% to ₹58,229 crore for the reporting quarter from ₹48,885 crore in a similar quarter of last year. The net profit surged to ₹10,883 crore, a jump of 11% compared to ₹9,806 crore.
Deal wins for the quarter continued strong and remained high. Moreover, deal wins were spread across verticals and across geographies and stood at $7.8 billion.
In its recent report, brokerage house Motilal Oswal forecast that the IT giant will outshine peers in 2023 on the back of its superior cost-focused capabilities to drive performance.
"We believe TCS, among our IT services coverage, is best positioned to ride out the near-term moderation in technology spending, on account of macroeconomic stress in developed economies," said the brokerage.
Other stocks, including LTI Mindtree, Mphasis, and Coforge, also reported decent Q3 results, which have contributed to the rally in their share prices in the range of 3–16%.
In addition, four blue-chip IT stocks, including bellwether Infosys, Wipro, HCL, and Tech Mahindra, rallied strongly between 3 and 10% following their Q3 FY23 earnings.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
